Big week for the data, but who's watching?

CBS.MarketWatch.com

WASHINGTON (CBS.MW) -- As they search for hints about the central bank's next moves, Fedwatchers (and who isn't one these days?) will be watching the Dow
DJIA, -1.56%
and the Nasdaq
$compq
as much as they pore over the flow of economic data in the next few weeks.

In two appearances on Capitol Hill, Alan Greenspan made it clear that, for the Fed, the key to slowing the economy is mainly a matter of making investors feel a little less wealthy and a little less likely to spend their gains. The Dow has got the message, but what about the Nasdaq?

The imbalances troubling Greenspan stem from the financial markets, not from within the product markets that the economic indicators measure.

That turns all of the economic data into lagging indicators that will only confirm long after the fact whether the Fed's saber rattling and rate hiking are reducing demand.

That said, the coming week offers the most comprehensive slate of economic news before the Fed's next policy meeting, scheduled for March 21. The data are expected to show a strong economy with little immediate danger of inflation.

Jobs

At the top of the list is the February employment report, scheduled as always at 8:30 a.m. on Friday.

The consensus forecast of economists surveyed by CBS.MarketWatch.com sees job growth of about 225,000 in February. The jobless rate is expected to remain at 4 percent while wage growth should moderate to a 0.3 percent gain. Employment grew 387,000 in January, bringing the jobless rate down to another cyclical low of 4.0 percent. Average hourly wages grew 0.4 percent.

Kasriel is looking for payroll gains of 275,000, boosted by temporary workers to conduct the census. He thinks the jobless rate will remain at 4 percent, although "it certainly is possible it could drop below that magic number."

If the jobless rate does dip to 3.9 percent (for the first time since January 1970), "it would reinforce Greenspan's view that the rate increase is called for," Kasriel said. But it's not likely that strong job growth or a low jobless rate would induce the Fed to boost rates by a half percentage point.

"There's a chance of softness in the headline number," said Ryding, who sees payroll growth much slower, at around 165,000. "It really isn't going to jolt expectations."

Ryding is also looking for a "good reading in the wages," underscoring that "we don't have any inflation."

Kasriel thinks the "internals" of the job report -- the unemployment rate, the quit rate, and labor pool numbers -- matter more and more to the Fed and therefore to the markets.

"The quit rate tends to jump around a lot, but it's an indication of worker arrogance," he said. Most people don't get vastly bigger paychecks by asking the boss for a raise: they get them by walking out the door and finding something better.

NAPM

The other big number of the week is the manufacturing index from the National Association of Purchasing Management, due at 10 a.m. Wednesday. Once again, as much attention will be paid to the subindex on prices paid as the main index on manufacturing activity.

The MarketWatch consensus calls for the overall index to remain right around the 56.3 percent mark, which indicates an expanding sector. The prices paid index could fall a bit to 71.7 percent from 72.6 percent in January, reflecting higher commodity prices (especially oil) as global demand improves.

Minor releases

Most of the other indicators are minor releases, such as the January numbers on factory orders, new home sales, construction spending, and personal income and spending. The consensus forecast calls for slightly weaker activity in most of the reports compared with December.

The MarketWatch consensus sees at least two more rate hikes in the next six months. Both Ryding and Kasriel concur, although Kasriel thinks one of those increases might be a 50 basis point move.

"What would trigger that more aggressive move would be acceleration in core inflation," Kasriel said. He and other economists are noting a trend toward higher shelter costs, reflecting with a lag last year's boost in home prices. Since shelter accounts for 30 percent of the consumer price index, acceleration in shelter could boost the core CPI.

Ryding said there are only two things that will get us out of the rate hiking mode: Strong evidence of a slowdown ("I don't see any," he said), or the Fed conceding that "the economy can grow at this pace without inflation."

Ryding doesn't see that scenario playing out any time soon. "Greenspan took us further away from that in his testimony," Ryding said.

One item that could be of increasing interest will come Friday, when the Commerce Department releases its first-ever estimate of online retail sales, covering the fourth quarter. There's no history to compare the data against, so it'll be hard to read until a few quarters' worth of data are available.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.